The ACA Subsidy Cliff Is Back: Managing Income Around 400% FPL (and the End of Repayment Caps)
The enhanced credits ended with 2025, so the 400%-of-poverty cliff is back, and a 2025 law now makes you repay excess advance credits in full. Here is how Marketplace income is counted, what crossing the line costs and the moves that still work before December 31.
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📐 Figures verified Sep 26–27, 2026 against IRS Fact Sheet 2025-10, IRS Rev. Procs. 2025-25 and 2026-26, the 2025 and 2026 HHS poverty guidelines, IRS Notice 2026-05 and Public Law 119-21. How we check numbers →
For 2026 coverage, the premium tax credit stops at 400% of the poverty line: $62,600 for one person, $84,600 for a couple and $128,600 for a family of four. Go one dollar over and you repay every dollar of advance credit, and from 2026 there is no repayment cap even below the line. HSA, pre-tax 401(k) and IRA contributions and income timing can keep you under.
Numbers That Matter: The Cliff in 2026 and 2027
| Figure | Amount | Source | Verified |
|---|---|---|---|
| Premium tax credit ends above 400% of poverty, 2026 coverage: household of 1 / 2 / 4 | $62,600 / $84,600 / $128,600 | HHS 2025 poverty guidelines | Sep 26, 2026 |
| Premium tax credit ends above 400% of poverty, 2027 coverage: household of 1 / 2 / 4 | $63,840 / $86,560 / $132,000 | HHS 2026 poverty guidelines | Sep 26, 2026 |
| Most you pay toward the benchmark plan (300–400% of poverty), 2026 | 9.96% of income | IRS Rev. Proc. 2025-25 | Sep 26, 2026 |
| Most you pay toward the benchmark plan (300–400% of poverty), 2027 | 10.22% of income | IRS Rev. Proc. 2026-26 | Sep 26, 2026 |
| Cap on repaying excess advance credits, tax year 2026 onward | None: the full excess is repaid | IRS Fact Sheet 2025-10 | Sep 27, 2026 |
| HSA contribution limit, 2026 (self-only / family) | $4,400 / $8,750 | IRS Rev. Proc. 2025-19 | Sep 25, 2026 |
| Marketplace bronze and catastrophic plans count as HSA-eligible | Since Jan 1, 2026 | IRS Notice 2026-05 | Sep 27, 2026 |
| 401(k) / 403(b) deferral limit, 2026 (catch-up at 50+ / at 60–63) | $24,500 (+$8,000 / +$11,250) | IRS IR-2025-111 | Sep 25, 2026 |
| IRA contribution limit, 2026 (catch-up at 50+) | $7,500 (+$1,100) | IRS IR-2025-111 | Sep 25, 2026 |
| Tips, overtime, car-loan interest and 65+ deductions | Form 1040 line 13b, below AGI: no effect on ACA income | IRS: Schedule 1-A | Sep 27, 2026 |
Why the Cliff Matters Again in 2026
From 2021 through 2025 the premium tax credit had no income ceiling. A household above 400% of the poverty line paid no more than 8.5% of its income for the benchmark silver plan, and the credit covered the rest. That rule expired on December 31, 2025, and as of September 2026 Congress has not brought it back.
What is left is the original design. Between 100% and 400% of the poverty line you are expected to put a set share of your income toward the benchmark plan, a share that climbs with income and tops out at 9.96% for 2026 coverage. Above 400% the credit does not shrink. It disappears.
That is why people call it a cliff. A couple on 2026 coverage can be asked to pay at most $8,426 a year toward the benchmark, which is 9.96% of their $84,600 line. If their benchmark plan costs $25,200 a year, they get a $16,774 credit a dollar under the line and nothing a dollar over it. Few financial decisions put that much money on a single dollar of income.
The second change is easier to miss. Advance credits go to your insurer each month, based on the income you estimated when you enrolled, and you settle up on Form 8962 when you file. Until now, most households under 400% who guessed too low had their repayment capped. Public Law 119-21 (section 71305) removed the caps for tax years that begin after December 31, 2025, and the IRS confirms that from 2026 you repay the full difference. Your 2026 return, filed in 2027, is the first one under the new rule.
Where the Line Falls for Your Household
The credit uses the poverty guidelines in effect when open enrollment began, so 2026 coverage runs on the 2025 table and 2027 coverage on the 2026 table (26 CFR 1.36B-1). Here is where the credit ends in the 48 contiguous states and DC, and the most you can be asked to pay toward the benchmark right before it does.
| Household | 400% line, 2026 coverage | Most you pay at that line (9.96%) | 400% line, 2027 coverage | Most you pay at that line (10.22%) |
|---|---|---|---|---|
| 1 person | $62,600 | $6,235 | $63,840 | $6,524 |
| 2 people | $84,600 | $8,426 | $86,560 | $8,846 |
| 3 people | $106,600 | $10,617 | $109,280 | $11,168 |
| 4 people | $128,600 | $12,809 | $132,000 | $13,490 |
Each extra member of the household adds $22,000 to the 2026 line and $22,720 to the 2027 line. Alaska and Hawaii use higher guidelines: for a couple, the 2026 line is $105,720 in Alaska and $97,280 in Hawaii, and the 2027 line is $108,200 and $99,560.
Read the table from right to left. Just under the line, your share of the benchmark premium is capped at the amount in the “most you pay” column. One dollar over, you pay the whole premium. The difference between the two is the price of crossing, and because Marketplace premiums rise with age, people in their late 50s and early 60s face the steepest drop: their benchmark plans can cost two to three times what a 30-year-old pays.
What Counts as Income for the Credit
The credit is based on household income: the modified adjusted gross income (MAGI) of you, your spouse if you file jointly, and any dependent who has to file a tax return (IRS FS-2025-10). For this purpose, MAGI is your adjusted gross income plus three add-backs: tax-exempt interest, the part of your Social Security benefits that is not taxed, and foreign earned income you excluded. Supplemental Security Income does not count.
| Counts toward the cliff | Does not count |
|---|---|
| Wages, and self-employment profit after business expenses | Withdrawals of Roth IRA contributions, and qualified Roth withdrawals |
| Traditional IRA and 401(k) withdrawals, including Roth conversions | Money you spend from savings, checking or a maturing CD |
| Capital gains, including gains taxed at 0% and year-end fund distributions you reinvest | The cost basis when you sell an investment (only the gain counts) |
| Interest and dividends, including tax-exempt municipal bond interest | Loans: a HELOC, a margin loan or a 401(k) loan you repay |
| All of your Social Security benefits, taxed or not | Gifts, and an inheritance itself (distributions from an inherited IRA do count) |
| Pensions, annuity income, net rental income, unemployment benefits and taxable canceled debt | HSA withdrawals for medical bills, child support and Supplemental Security Income |
Two rows cause most of the surprises. Start with capital gains. For 2026 a married couple pays no federal tax on long-term gains while taxable income stays under $98,900 ($49,450 for single filers), yet those gains sit inside adjusted gross income, so every dollar still counts toward the cliff. Then Social Security: the untaxed part is added back, which means that for Marketplace purposes your whole benefit counts.
A set of new deductions does not help at all. The deductions for tips, overtime, car-loan interest and taxpayers 65 and older are claimed on Schedule 1-A, which flows to line 13b of Form 1040, below adjusted gross income (IRS: Schedule 1-A). They cut your taxable income, not the income the Marketplace counts. The standard deduction, mortgage interest and charitable gifts work the same way.
The End of Repayment Caps
Reconciliation works like this. Early in the year the Marketplace sends Form 1095-A, showing the advance credit paid for each month. On Form 8962 you work out the credit you actually qualified for, using your real income and household, and compare the two. If the advance was bigger, the difference is added to your tax; if it was smaller, you get the rest as a refund. You must file a return with Form 8962 whenever advance credits were paid, and skipping it cuts off advance credits in later years (IRS FS-2025-10).
Until this year most households under 400% had a ceiling on that bill. On a 2025 return a single filer owed back no more than $375, $975 or $1,625, depending on income, and other filers no more than $750, $1,950 or $3,250 (IRS Publication 974). Above 400% there was never a cap. Starting with 2026 there is no cap at any income.
Here is what that means for a self-employed designer, single, who estimated $30,000 when she enrolled and finished the year at $55,000. Her benchmark plan costs an illustrative $8,400 a year.
| Step | Her estimate | What she earned |
|---|---|---|
| Household income | $30,000 | $55,000 |
| Share of the 2026 poverty line ($15,650) | 191.7% | 351.4% |
| Share of income toward the benchmark | 6.20% | 9.96% |
| Expected contribution | $1,860 | $5,478 |
| Premium tax credit | $6,540 | $2,922 |
The advance credit paid on her behalf was $6,540; she qualified for $2,922. Under the old cap she would have repaid at most $1,625. For 2026 she repays the whole $3,618. (Figures are rounded; Form 8962's lookup table can move them by a few dollars.) If a bill like that is more than you can pay in April, the IRS offers the same payment plans it offers for any other balance due.
Cliff Check: Where Does Your Household Stand?
Put in your own numbers. The benchmark is the second-lowest-cost silver plan for your household, which HealthCare.gov shows when you preview plans for your ZIP code. Use your full-year projection, including income you expect through December.
Nothing you enter is stored or sent. The math follows the IRS sliding scale, rounded to the nearest 0.01%; Form 8962 uses a lookup table, so your return can differ by a few dollars. The credit also cannot be more than the premium of the plan you choose.
Worked Example
Dana and Chris Marsh, both 61, file jointly in a contiguous state and are covered by a family bronze plan from the Marketplace. Chris works part time for an employer with no health or retirement plan. Dana draws from a traditional IRA. At enrollment they projected 2026 income of $73,400: $26,000 in wages, $40,000 from the IRA and $7,400 of interest and dividends. Their benchmark silver plan costs an illustrative $2,100 a month, or $25,200 a year.
| At enrollment | Marsh household |
|---|---|
| Projected 2026 MAGI | $73,400 |
| Share of the 2026 poverty line for two ($21,150) | 347.0% |
| Share of income toward the benchmark | 9.96% |
| Expected contribution | $7,311 a year |
| Advance credit paid to their insurer | $17,889 a year ($1,491 a month) |
By September the year looks different. Chris picked up hours and a bonus, so his wages will reach $33,000. A stock they sold in May brought a $3,000 long-term gain, and their mutual fund expects to pay a $4,200 capital gain distribution in December. The new projection is $87,600, which is $3,000 over their $84,600 line.
| What they do | 2026 MAGI | Credit they qualify for | At tax time |
|---|---|---|---|
| Nothing | $87,600 | $0 | Repay $17,889 |
| Put $10,750 into HSAs | $76,850 | $17,546 | Repay $343 |
| HSAs, plus cover December spending from cash instead of a $6,400 IRA withdrawal | $70,450 | $18,183 | $294 back |
The HSA amount is the 2026 family limit of $8,750 plus the $1,000 catch-up that each spouse aged 55 or older can add to an HSA in their own name. They have until April 15, 2027 to put it in, and because the bronze plan covered them all year, the full-year limit applies. At their 12% bracket the same deposit also trims about $1,290 of federal income tax, and the money stays theirs for future medical bills.
Notice what nearly sank them. Their taxable income is well under $98,900, the top of the 0% capital gains band for joint filers, so the $7,200 of gains cost them nothing in income tax. Without those gains they would have finished under the line. With them, the gains would have cost $17,889 in credits.
The Levers, and When Each One Closes
A move only helps if it lowers adjusted gross income or keeps income out of it. Here are the ones that do, ordered by deadline for the 2026 tax year.
| Lever | Who can use it | 2026 limit | Deadline |
|---|---|---|---|
| Pre-tax 401(k), 403(b) or governmental 457 deferrals | Employees whose job offers a plan | $24,500, plus $8,000 at 50+ or $11,250 at ages 60–63 | Your last 2026 paycheck |
| Harvest capital losses | Anyone with taxable investments worth less than they paid | Offsets gains in full, plus $3,000 of other income | December 31, 2026 |
| Delay gains, Roth conversions and IRA withdrawals | Anyone who controls the timing | No limit | December 31, 2026 |
| Time self-employment income and expenses | Cash-basis freelancers and business owners | Real, ordinary business costs only | December 31, 2026 |
| HSA contributions | Anyone covered by an HSA-eligible plan (now including Marketplace bronze and catastrophic plans) and not on Medicare | $4,400 self-only or $8,750 family, plus $1,000 at 55+ | April 15, 2027 |
| Deductible traditional IRA contributions | You or your spouse needs earned income | $7,500 each, plus $1,100 at 50+ | April 15, 2027 |
| SEP-IRA contributions | The self-employed | Roughly 20% of net self-employment earnings | Your filing deadline, including extensions |
Each lever has a catch. HSA money can only go in for months you are covered by an HSA-eligible plan, and most silver and gold plans are not. IRA contributions need earned income, which many early retirees do not have; near the cliff the deduction is usually allowed in full even with a workplace plan, since the 2026 phase-out does not begin until $81,000 for single filers and $129,000 for joint filers. A Roth conversion cannot be undone (recharacterizing it ended in 2018), so size it to the room you are sure of. And a harvested loss is disallowed if you buy the same or a substantially identical investment within 30 days before or after the sale.
Some moves feel like they should help and do not: paying down a mortgage, giving to charity, prepaying property tax. On the other side, spending from Roth contributions, cash savings or a taxable account's cost basis funds your life without adding to MAGI. That is why early retirees often change their withdrawal mix in a cliff year. Our guides to early-retirement withdrawal strategies and the Roth conversion ladder show how, Roth conversion timing covers when conversions pay off, and using an HSA as a retirement account explains why the HSA dollars keep working after this year.
One caution about overshooting. Push income below 138% of the poverty line in a state that expanded Medicaid and the Marketplace may direct you to Medicaid instead; fall below 100% in a state that did not, and there is no credit at all.
Your Q4 2026 Playbook
About three months of 2026 remain, which is enough time for most of these moves.
- Now: project your 2026 MAGI line by line. Pull year-to-date pay stubs, brokerage statements and any IRA withdrawals, then add what you expect through December, bonuses included.
- October and November: look up your funds' distribution estimates. Fund companies usually publish them in the fall. A distribution in a taxable account counts even if you reinvest it.
- Leave a buffer. Final figures such as 1099s, K-1s and a late bonus arrive after December 31. Aim to finish a few thousand dollars under your line, not a few dollars.
- If you will clearly land over the line, tell the Marketplace now. Updating your income shrinks or stops advance payments for the rest of the year, which shrinks the April bill. Report changes within 30 days (HealthCare.gov: reporting changes).
- Before your last paycheck: raise pre-tax deferrals if your job offers a 401(k), 403(b) or 457 plan.
- By December 31: harvest losses, and move gains, conversions and IRA withdrawals into 2027 where you can.
- November 1 to January 15: set your 2027 income estimate during open enrollment. Our 2027 open enrollment money checklist walks through it.
- By April 15, 2027: make your 2026 HSA and IRA contributions, then file with Form 8962.
Planning 2027 Before You Enroll
For 2027 coverage the same rules apply with new numbers. The credit ends at $63,840 for one person, $86,560 for a couple and $132,000 for a family of four; the top expected contribution rises to 10.22% of income (Rev. Proc. 2026-26); and the HSA limit moves to $4,500 self-only and $9,000 family (Rev. Proc. 2026-24). What changes is the timing. You can plan the whole of 2027 before it starts, so decide where conversions, gains and IRA withdrawals will land before you give the Marketplace an estimate.
If your income swings from year to year, estimate on the high side and take only part of the credit in advance. Anything you are owed comes back when you file, and a smaller advance means a smaller surprise if the year runs hot.
Turning 65 in the next few years? Medicare's income-related premium surcharges (IRMAA) are based on your tax return from two years earlier, so a large conversion at 63 can raise Part B and Part D premiums at 65. Our Medicare open enrollment checklist has the current IRMAA table, and the Insurance & Estate hub collects the rest of our coverage guides.
- The enhanced credits expired. The 2021–2025 rules capped the benchmark at 8.5% of income with no upper income limit. They ended December 31, 2025.
- The 400% cliff returned. For 2026 coverage it sits at $62,600 for one person and $84,600 for a couple in the contiguous states.
- Repayment caps are gone. From tax year 2026, excess advance credits are repaid in full at every income (P.L. 119-21, section 71305).
- Bronze plans work with HSAs. Since January 1, 2026, Marketplace bronze and catastrophic plans count as HSA-eligible (IRS Notice 2026-05), which opens the biggest MAGI lever to people who buy their own coverage.
- The new deductions sit below AGI. Tips, overtime, car-loan interest and the 65+ deduction lower taxable income, not the income the credit uses.
If this, then that
- If your projected 2026 MAGI is within about 10% of your line → run the numbers before December 31. Payroll deferrals, loss harvesting and the timing of gains close at year-end; HSA and IRA deposits run to April 15.
- If you are over by less than your HSA room → fill the HSA. It is the one lever that does not need earned income, and bronze plans now qualify.
- If you will finish well over the line no matter what → update your income with the Marketplace now. Each month of advance credit you stop is a month you will not repay in April.
- If a Roth conversion is on your list → size it to your room under the line minus a buffer, or wait for a year without subsidized Marketplace coverage.
- If you fund spending from a traditional IRA → switch late-year spending to cash, Roth contributions or taxable principal, none of which count as income.
- If your income is lumpy → estimate conservatively and take part of the credit in advance; claim the rest when you file.
Mistakes to avoid
- Assuming gains taxed at 0% do not count. They are in adjusted gross income, so they count in full.
- Forgetting December mutual fund distributions in a taxable account, even when they are reinvested.
- Counting only the taxable part of Social Security. For the credit, the whole benefit counts.
- Expecting the new tips, overtime or 65+ deductions to lower your ACA income.
- Opening an HSA while enrolled in a plan that is not HSA-eligible, or making IRA contributions without earned income.
- Low-balling your income estimate to get a bigger advance credit. From 2026 the excess comes back in full.